IRA Contributions in Retirement

Here’s a question that a lot of our clients ask us: I’m over age 65. Can I still make a contribution to an IRA or a Roth IRA?

The answer is, it depends. You can continue to make annual IRA or Roth IRA contributions, up to a total of $7,000 (in 2019) if you are age 50 or older, only if you have earned income sufficient to cover the contribution. Earned income simply means money derived from work. A good rule of thumb is that if the income you earn is subject to FICA contributions or self-employment tax, you can contribute it to your IRA. If you live totally on Social Security, annuity payments, portfolio income, required minimum distributions and/or pension plan payments, then you cannot contribute. Since income from owning a property is not subject to FICA or self-employment tax, you cannot contribute to your IRA based on income from rental properties, either.

But, if you earn $5,000 in a year through self-employment or from an employer, then you can make a maximum $5,000 contribution.  If you earn more than $7,000, you can make the full contribution.

What if you are retired but your spouse is still working? If your spouse has earned income, he or she can contribute to their own IRA and you can make what is called a spousal contribution to your IRA, as long as your spouse has earned income equal to both contributions.

The caveat is that once you reach age 70/1/2, you can no longer make contributions to a traditional IRA—only to a Roth.

If you are covered by an employer retirement plan (think 401K), there are income limits that apply no matter your age. You can make your deductible traditional IRA contribution, assuming you are below age 70 1/2, if your modified adjusted gross income is below $64,000 (single filer) or $103,000 (joint), with phaseouts thereafter that limit and finally eliminate your ability to deduct the contribution.  Single filers earning less than $122,000 or joint filers below $193,000 can make the full Roth contribution, and their ability to contribute phases out after that.

If you are not covered by an employer retirement plan, there are no income limits.  Oh, unless your spouse is a high-income earner, then there are.

Complicated? Of course, it is! The traditional and Roth IRAs were created by Congress, after all. If you have questions or would like additional clarity for your situation, please call us. We’re here to help optimize your retirement—including ideas to save more and reduce your taxes along the way.

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